Cable Soars as Brexit Recedes – But Are UK Voters Lying to Pollsters?

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Market Drivers April 25, 2016

Cable pushes higher
Kiwi flirts with 6900
Nikkei -0.49 Dax 0.25%
Oil $43/bbl
Gold $1236/oz.

Europe and Asia:
GBP UK BBA Loans 45K vs. 46K eyed

North America:
USD PMI Services 9:45
USD Consumer Confidence 10:00

Cable continued its torrid run in early London trade today as it raced past the 1.4550 level and put the 1.4600 squarely in view as chances of Brexit continued to evaporate.

Sterling is now up more than 500 pips since the start of the month as polls continue to show that Remain vote continues to lead. Bookies are now projecting chances of Brexit at only 20% or less and there was speculation today that many hedge funds have started to close out their cable shorts capitulating on their earlier bets on Brexit.

Yesterday President Obama added to the remain campaign by stating that it may take as long as 10 years for UK to negotiate bilateral trade terms with US if the country were to leave the EU. The Remain campaign appears to have instilled enough economic fear into the UK populace to tilt the odds in its favor, while the Leave proponents have clearly lost momentum over the past few weeks.

The latest ORB poll shows remain at 53% with Leave at 46% and 3% undecided. However fully 20% of the populace is not committed to their position and with eight weeks to go in the campaign the dynamic may change once again. One of the more difficult aspects of political referenda such as these is that people often lie to pollsters about their true intentions, especially if those intentions are aligned against the conventional view. In short many Britons may state one opinion for the pollsters while doing quite the opposite in the privacy of the booth.

Therefore the risks of Brexit may have diminished, but they have not fully disappeared and the recent rally in the pound could quickly change course if market senses any shift towards the Leave camp. Meanwhile the 1.4600 figure could prove to be stiffer resistance as it carries some overhang from February highs. Having had such a strong rally, cable is due for a pause and with all the good news on the Leave side now fully priced in the upside may be limited.

Elsewhere USD/JPY slid through the 111.00 level as markets remained on the sidelines awaiting both the FOMC and the BOJ meeting decisions. With Japanese officials backing off any promises for further stimulus the pair has started to unwind some of its large gains from last Friday. There is no doubt that the market is far more focused on the Fed rather than the BOJ with traders looking for any sign from Ms. Yellen and company that a June hike may be in order. If the Fed actually hints at such a course of action the move in USD/JPY could quickly propel the pair toward prior range highs around the 114.00 figure. On the other hand another dovish communique from the Fed followed by inaction by the BOJ could take USD/JPY back below the 110 level unwinding all of last week’s gains.

With US calendar relatively quiet, the market could remain in range for the rest of the day as traders get ready for central bank fireworks starting tomorrow.

Boris Schlossberg
Managing Director

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